If it is, then that means Coinbase can create new "Bitcoin" on demand; which we both know that it cannot do.
In your own source, the banks ability to increase money supply through the multiplier effect is capped by the capital adequacy ratios, which are defined by the Fed. It is also an inevitability of any currency that isn't backed by an asset. To be clear, I don't have problems with the concept of fiat currencies, but we have to be honest about what it actually is and how it works, and how Bitcoin is different.
Unlike other currencies, Bitcoin is limited in supply and produces a set amount every 10 minutes - as a result there is the potential for a liquidity trap because these new injections into the market may fail to stimulate economic growth. Whereas, fiat currencies are backed by Governments etc (something which Bitcoin isn't) and these currencies can theoretically have an unlimited amount supplied into the economy - and as I highlighted with the American Recovery and Reinvestment Act of 2009[1] government spending and lending can have a positive impact on the economy in particular through kick-starting the multiplier effect.
Yes, but people argue that the finite supply of Bitcoin is a fundamental advantage vs. currencies. The supply of a currency isn't really infinite, but it's quite flexible when you consider that giving credit effectively "creates" more currency and expands the monetary supply. (I'm not clear why BTC won't eventually have this issue as well if folks start lending / borrowing it.) All the BTC really avoid is increases in the monetary supply via the printing of additional currency, which is arguably a feature of traditional money, in that the central government can intentionally tighten or ease the monetary supply to help manage economic volatility.
It would still be inferior to modern fiat currency from a macro-economic perspective, because whatever your rule is going to be, it will not adapt to the development of the economy.
Think of it this way: The abundance of money should somehow correlate with the abundance of real resources. When this correlation breaks down, bad things happen to the economy.
In modern fiat currencies, the supply adapts automatically, without government intervention to the development of the economy, via the mechanism of bank loans. When a bank makes a loan, the money supply grows. When a loan is paid back, the money supply shrinks.
Bitcoin cannot work that way by design, which makes it a bad choice for a common-use currency - at least from the perspective of macro-economic behavior.
My arguments are in no ways limited to bitcoin. They directly related to all crypto currency's. Anyway...
1) US federal reserve keeps track of all US currency held by banks and the transactions between banks. The banks you use are a separate layer on top of this system, but because of the FED's ledger transactions are ultimately reversible.
2) The actual number of bitcoins that currently exist is in practice not really known. If Satoshi Nakamoto's wallet did a transaction there would suddenly be a lot more bitcoins in play, devaluing the other coins. So, effectively the number of bitcoins can increase at any time.
Further, the number of existing dollars means there is no meaningful way to suddenly devalue them. At worst inflation can rise, but you can swap currency before that ends up costing you 2% thus making it irrelevant.
To me personally, the point is the fixed supply, and the lack of central bank interference is just part of the means to that. I would like to be able to park money somewhere without having it lose value, and possibly even gain in value.
Anyway, as you said, someone certainly could fork bitcoin to make a system where the money supply is expanded indefinitely. I don't think it would catch on, though... at least unless bitcoin has already become "accepted."
No, it's a massive step in the wrong direction compared to the federal reserve. There is reason bitcoins value wildly fluctuates and the US dollars doesn't.
I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually purchases Treasury bills on the open market. The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money.
Meanwhile, I've already discussed Bitcoin's potential as an alternative currency (or lack thereof) in other comments. If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world.
This is a really, truly weird way to defend Bitcoin, whose claim to fame is that its only value comes from its uptake. The argument goes, "governments can fiat money, so why can't we?"
There is no unique creation of value anywhere in the Bitcoin life cycle. Any liquidity or anonymity externality that doesn't equally apply to USD is probably accruable only by criminals and traffickers.
The transactions are slow and costly, and there's no guarantee that some governmental research agency hasn't already broken the cryptographic underpinnings.
Of course the problem is that major parts of your argument apply to the Federal Reserve system also, as well as nearly all other fiat currencies such as the Euro, Pound, Yuan etc.
So exchanging fiat Euros for fiat Bitcoin means what, exactly?
Yes, but the BTC infrastructure itself provides a cryptographically strong method of proving reserves. If a large nation decided to implement its own hybrid fiat/cryptocurrency, it would basically be an unstoppable juggernaut, assuming no one ever broke the crypto protocols in a widely exploitable way. (And even then, the fiat currency might survive.)
Sure, but the ECB or Federal Reserve can print money, and you don't control them. If your goal is a mathematically guaranteed money supply (this would not be my goal, fwiw), BTC is superior.
To clarify: I meant that bitcoin didn't, and probably won't, for reasons attributable to the limitations of the implementation, supplant fiat currency and become a basis for deprecating the federal reserve, which I agree is a laudable goal.
Bitcoin did, however, succeed in proving that a distributed consensus mechanism can exist as a store of value. As you point out.
Right now central banks are printing money and giving it to already insanely rich people, how does that help economic growth and quality of life?
At least bitcoin will be a little more democratic so that it will grow the economy better than current fiat system.
Normally best system would be a nationalised central bank that is actively trying to increase quality of life of citizens but as you can see we are not living in an ideal world.
I don't think Bitcoin will ever be a viable currency, at least not on the scale of national currencies. Despite all the flaws fiat currency has, it is actually backed by something - the power of the country's government to tax. Thus, any buyer of sovereign debt has a calculable probability of return. Despite America's printing of dollars, inflation has actually been mild so far.
Bitcoin has nothing backing it but an artificial supply limitation. That in itself is not a solution because its monetary base cannot possibly grow at the rate overall goods do, and thus have a stable price point.
I disagree on both points. The US government has deemed US dollars to be the only thing that can be used to pay taxes, so therefore it has some root value.
On commodities, if there is strong demand for gold, uranium, corn, etc. the market can respond and invest more capital into creating them. Bitcoin - not so. No matter how much more capital is invested in mining, the rate of inflation is fixed, and the pie is just split differently. But there cannot be an influx of new Bitcoin above what is specified in the protocol.
But actually being a fiat currency gives the central bank the means to counteract that, which bitcoin doesn't have.
E.g printing money to buy foreign currency bonds to lower the exchange rate.
In your own source, the banks ability to increase money supply through the multiplier effect is capped by the capital adequacy ratios, which are defined by the Fed. It is also an inevitability of any currency that isn't backed by an asset. To be clear, I don't have problems with the concept of fiat currencies, but we have to be honest about what it actually is and how it works, and how Bitcoin is different.
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